(Yicai Global) March 1 -- Danone is getting ready to sell its shares in China Mengniu Dairy after eight years of partnership, as the synergy between the two dairy giants has weakened, according to industry insiders.

Danone is reviewing its portfolio, which includes a 9.82 percent stake in Hohhot-based Mengniu, the Chinese firm said in a stock exchange filing this morning. Danone is Mengniu’s second-biggest shareholder and is considering to convert its indirect stake to a direct holding as a move toward selling.

The pair began working together in 2013, when Danone bought a 4 percent stake. The next year, Danone, Cofco and Denmark's Arla Foods formed a joint venture called Cofco Dairy Investments, whose combined stake in Mengniu was 31.5 percent, with Danone increasing its share. As Mengniu's big three investors, Cofco, Danone and Arla own 16.3 percent, 9.9 percent and 5.3 percent, respectively. 

Mengniu and Danone have benefited from their cooperation, independent dairy sector analyst Song Liang told Yicai Global. Mengniu needed Danone's technology and experience for its international development and diversification, while Danone needed Mengniu's sales network and government resources to develop in the Chinese market, Song said. But the effects of this cooperation are weakening along with the change and development of the two firms. 

After a series of adjustments, Danone's business in China now focuses on two main areas, specialty nutrition and drinking water and beverages, Song said. It has also been increasing its investment in infant milk powder and nutritional products, thus becoming a rival to Mengniu in some areas. 

Mengniu is China’s second-largest dairy products maker by operating revenue, raking in CNY37.5 billion (USD5.8 billion) in the first half of last year, second only to Inner Mongolia Yili Industrial Group's CNY45.1 billion.

Danone announced investment of EUR100 million (USD120.5 million) last July to develop specialized nutrition products in China. The money will be used to set up a research and development center focusing on breast milk and intestinal health, as well as the acquisition of an infant milk powder plant in the coastal city of Qingdao. 

Mengniu also sees infant milk power as a key development field, and it owns various brands in the sector, including Yashily and Bellamy’s Organic.

Shares of Mengniu [HKG: 2319] closed 1.5 percent higher today at HK43.05 (USD5.55), after earlier gaining as much as 3.4 percent. The benchmark Hang Seng Index added 1.6 percent.

Editors: Dou Shicong, Tom Litting